A new survey indicates that many consumers are more worried about banks raiding their accounts than criminals.
Consumers are five times more likely to switch banks because of hidden fees than security concerns, according to the survey conducted by the Gartner consulting firm. And one in six U.S. adult consumers -- an estimated 28 million people -- said unexpected fees make them more upset or aggravated than having their financial accounts taken over or used by a thief.
The survey also found that 1 in 4 U.S. adults – an estimated 42 million people -- have been hit with a bank overdraft charge in the past 12 months. Gartner banking consultant Avivah Litan will publish the results soon as part of a larger study about consumer attitudes toward banks and security.
"The surprising thing is that (some consumers) were more upset about the fees than they are about the crooks," Litan said. "… Banks make the biggest deal about security and how they protect your accounts and spend a lot of money advertising that ... but what people really care about is fees."
She said she was stunned by the frequency of overdraft fees that showed up in her survey.
"Twenty-five percent was way more than I expected," she said. Also surprising: the customer churn these fees generate. "When you have one in five customers leaving a bank because of excessive fees, that's a huge customer service cost. They must be making a lot of money from excessive fees."
Overdraft fees have recently drawn the scrutiny of Congress. Rep. Carolyn Maloney, D-N.Y., has sponsored legislation that would require banks to notify consumers before imposing overdraft fees, similar to fee notifications required at ATMs for cash withdrawals. Maloney cited MSNBC.com reader dissatisfaction with bank fees at a House banking committee hearing on overdraft charges July 11.
That same day, the Center for Responsible Lending released a report saying banks collect $17.5 billion each year in overdraft fees.
In the era of stiff competition and free checking accounts, penalty fees have become an increasingly important source of revenue for banks. About half of bank profits now come from fees -- exceeding profits from credit cards, mortgages and all other interest income -- according to the research firm R.K. Hammer.
Banks annually collect about $32 billion in fees, the bulk of that from overdraft or what were once known as "bounced check fees," according to SNL Financial.
More ways to pay
Formerly, these fees were mostly limited to consumers who wrote checks that exceeded the balance in their checking accounts. But as consumers use debit cards linked to their checking accounts more frequently -- and in more complicated ways -- the chances of overdrawing their accounts have skyrocketed. Consumers making purchases with debit cards or withdrawing money from an ATM can now easily push their accounts into the red. In fact, according to the Center for Responsible Lending, most "bounced check" charges now arise from debit purchases or other electronic transactions.
The banking industry has long maintained that overdraft fees benefit consumers, giving them flexibility to occasionally spend money they don't have. "Courtesy overdraft protection" also prevents consumers who write bad checks from facing fees levied by retailers, banks say.
But the industry puts the onus on consumers to keep track of what's in their account.
"The bottom line is that customers are in the best position to know what their actual balance is -- only they know what checks they have written, automatic payments they have authorized and debit card transactions they have approved," Nessa Feddis, a spokeswoman for the American Bankers Association, said during congressional hearings earlier this year. "Simply put, consumers are in control of their finances and can avoid overdraft fees."
Many of those who responded to the Gartner survey didn't see it that way.
They said that overdraft fees are unfair about two-thirds of the time. About 40 percent of overdraft fee payers said their balances dipped below zero banks were slow to credit funds that had been deposited into their accounts.
Controversy over check depositing procedures has grown since the advent of Check 21, a new banking law that took effect in 2004. The law allows banks to clear checks electronically rather than requiring them to send canceled checks to the originating bank. While Check 21 means banks can withdraw funds from consumers' accounts almost immediately when a check is cashed, they still have up to five days to credit consumers' accounts when money is deposited. Many consumers say the time lag is a factor in overdraft fees.
Another 20 percent of respondents said the bank simply made an error when they were charged a fee. And one in eight – or 12.5 percent -- said the overdraft was the result of unauthorized withdrawals from their account.
When asked to provide additional details about fees they felt were unfair, many consumers complained that banks intentionally manipulated withdrawals to maximize fee revenue, a practice banks calls "high-low" check cashing. Others said banks were unforgiving, assessing $35 fees when accounts were short only by pennies.
Banks that persist in charging heavy fees risk a loss of trust from their customers, but little else Litan said. And many customers who switch banks find they are in the same boat.
"Consumers really have no place else to go," she said. "They may leave a bank because they are upset about the fees ... but they just go to another bank that's got the same fee structure. It's like a merry-go-round."
RED TAPE WRESTLING TIPS
• Go small. Few consumers think to compare fees when shopping for a bank, but that's the best way to judge an institution. Litan said some smaller banks and credit unions often have more generous fee structures and are more willing to waive fees for customers who make occasional mistakes. Investigate a credit union near you. Many now refund ATM fees, so there's really no reason to stick with Big Bank Incorporated.
• Go online. Given all the ways we can drain funds from our checking accounts now, it's easy to lose track of your balance. Online banking can help. It's not perfect, of course, but checking your balance every few days can help you avoid going into the red.
• Go with credit. Debit card use is often to blame for overdrawn accounts. It's hard to keep track of all those purchases, and it's easy to ring up five or six overdraft fees in a single day if you are a serial swiper. A recent Consumer Reports study found that using debit cards costs consumers more than credit cards in the long run. Pay your credit card bill on time every month and use the debit card only at ATMs and you will be ahead of the game.